It is often said that start-up and emerging biotechnology companies require patient capital in order to execute on their business plans. Unfortunately, for Canadian biotechs they have had to be extremely patient waiting for capital.

The Canadian biotechnology industry has certainly experienced the "worst of times" where, for the past four years, the availability of venture capital has remained in relatively short supply. In 2010, for example, only C$80 million was raised by private Canadian companies focusing on the development of biopharmaceuticals and only three of the venture capital deals in 2010 raised more than C$10 million. (See BioWorld SnapShots 2010.)

After weathering this severe shortage of venture capital, Canada's long-suffering biotechnology company executives and university researchers hoping to get their innovative projects funded may at last be rewarded for their patience. The creation of several new biotechnology-focused venture funds in the past few months means that there will now be new money on the table for investing in early stage breakthrough research and development in Canada.

Two of the largest funds currently bring C$250 million to the table, although this could swell to C$350 million with the Lumira Capital II of Toronto, Ontario fund still fundraising after its first close of C$100 million. One of the major investors in Lumira Capital II is Teralys Capital, which also committed an investment of C$65 million into TVM Life Science Ventures VII that closed at C$150 million raised. This fund, based in Montreal, Quebec, will focus primarily on early stage drug development and life sciences company opportunities in the province of Quebec.

"The venture capital community has come of age in Canada," Peter van der Velden, managing general partner, Lumira Capital, told BioWorld Insight. "These new funding commitments will allow us to support the life sciences ecosystem in Quebec and Canada. It is encouraging to know that we have the ability to support Canadian biotherapeutic and medical device innovation where the possibilities for enhanced returns are compelling."

While Lumira Capital II will focus on later stage investment opportunities, Lumira will also manage the Merck Lumira Biosciences Fund, which had a first close of C$43 million, and is targeting a final closing of up to C$60 million, van der Velden said. The fund will invest in Quebec-based biotechnology companies with products in early development. Merck will not have any rights to the fund's portfolio companies or to their products simply by virtue of its role as a limited partner.

Pharma Gets Involved

According to van der Velden, the involvement of pharmaceutical companies in these new funds has been critical, and is part of a well-documented trend that pharma corporate venture capital is playing an increasing role in investing in early stage biotech companies. The Merck investment fulfills some of the company's commitment to investing C$100 million through 2015 in biopharmaceutical research and development collaborations with Quebec-based companies and academic institutions. This initiative followed its announcement to close its operations in Montreal.

Eli Lilly and Co. is a major investor in TVM Life Science Ventures VII and with its involvement the fund said it will execute on a plan to create numerous single-therapeutic asset companies in Canada that will develop drugs from the candidate-selection phase through to proof of concept.

Michael Mason, president of Eli Lilly Canada, said that "the new investment will support a more efficient way to develop innovation in Canada."

The company will establish a Chorus Canada in Montreal – an autonomous unit of Lilly, a global early phase drug development network. Eli Lilly's Chorus was formed in 2002 to more efficiently move early stage compounds to proof of concept. Using this approach, Chorus has been able to reach decisions on drug development about 12 months earlier and at about half the cost of the current industry model. (See BioWorld Today, Feb. 1, 2010.)

Chorus draws on internal parent company skills, contract research organizations and external consultants with very specific areas of expertise.

"Chorus Canada will work with development service providers across the province and elsewhere to offer development services to project-focused companies based primarily in Quebec," Mason added.

GlaxoSmithKline Inc. (GSK) also is investing in the Canadian life sciences industry through a C$50-million GSK Canada Life Sciences Innovation Fund. Announced in 2011, the fund will be managed by GSK in Canada and GSK's global corporate venture capital arm SR One.

Neal Hill, VP of fund investments at the Business Development Bank of Canada (BDC), told BioWorld Insight that although the new venture funds seemed to have appeared as an "overnight phenomenon," being announced within a month of each other, it was purely coincidental. The seeds for their creation had been sown three years earlier when the federal government, the provinces of Ontario and Quebec and the venture capital community recognized that they needed to address the parlous state of affairs with Canada's biotech innovation at that time. The deterioration of the venture capital industry was being felt, at all levels of the industry.

"Thanks to a series of events including a consolidation of venture capital funding in Quebec into Teralys Capital – a fund of funds – we were able to attract experienced venture capital firms into Canada who had a long term view for the sector," explained Hill.

BDC Venture Capital invested C$20 million of the C$150 million raised by TVM Capital and a similar amount in the first closing of Lumira Capital II. The investments are part of BDC's new strategy to foster the entrepreneurial growth of industries vital to Canada's long term economic well-being, Hill said.

BDC Venture Capital is a major venture capital investor in its own right in Canada with more than C$1 billion in current and planned investments. Approximately one-third of its capital is targeted for investing in the life sciences.

During the next five years, the TVM and Lumira funds said they expect to invest in a total of 30 new companies, which they will then continue to support as they mature to hopefully become global leaders in their fields.

There is certainly no shortage of Canadian projects to invest in. van der Velden said that since the announcement of the creation of the Lumira-managed funds they have received 150 business plans so far. The deals on offer are also more sophisticated and pay attention to biotech's new business models incorporating lean infrastructures, achievable milestones and a focus on partnerships.

The Canadian biotech industry has reached an exciting stage in its evolution with industry, government and the VC industry sharing a common goal to leverage the country's world class research, van der Velden concluded.